XCHRX SUN FOOK KONG (CIVIL) LTD. v. WELLEAD CONSTRUCTION AND ENGINEERING CO., LTD.

HCA 2852/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2852 OF 1999

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REASONS FOR DECISION

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1. This is an application by the Plaintiff for summary judgment in respect of two sums totalling just over $740,000.00 against the 1st Defendant as the debtor and the 2nd Defendant as the guarantor.

2. It is the Plaintiff's case that two loans of about $380,000.00 and $360,000.00 were advanced to the 1st Defendant in November 1998 and that such loans were repayable upon demand if the 1st Defendant's account with the Plaintiff was found to be in arrear and that the 2nd Defendant agreed to be the guarantor for the 1st Defendant in respect of the said loans. The two loans were evidenced by two agreements dated 2 November 1998 and 14 November 1998.

3. The Plaintiff contends that the Defendants had failed and/or refused to repay the said loans upon demand and hence the present claim.

4. The Defendants deny that the two sums of $380,000.00 and $360,000.00 were loans to the 1st Defendant as suggested. Instead, the defence suggests that the 1st Defendant was at all material time a sub-contractor of the Plaintiff and that under the sub-contract the Plaintiff had to make interim payments to the 1st Defendant on a monthly basis.

5. It is the Defendants' case that in September 1998 and October 1998 the 1st Defendant submitted applications for interim payment in respect of certain projects in Tung Chung and that the two sums in question were in fact payments to the 1st Defendant by the Plaintiff as interim payment for the sub-contract work in question.

6. In so far as the Plaintiff's case was supported by the two loan agreements and the guarantee, the defence suggests that such documents were signed as a result of mistake in that the 2nd Defendant thought they were just receipts for interim payments. There is also the suggestion that the agreements were signed by the 2nd Defendant under what was termed as economic duress.

7. The 1st Defendant further suggests that when the 2nd Defendant signed the loan agreements on behalf of the 1st Defendant, being not literate in the English language, he did not know the true nature of the documents.

8. The burden of proof in relation to a defence of non-est factum is a very heavy one which lays on the person pleading it and there are authorities to the effect that a plead of non-est factum could not be argued unless it could be shown that the signatory thought that he was signing a document substantially different in nature or in kind and that the person raising the plea had acted reasonably and with due care.

9. There are also authorities to the effect that ignorance of the full legal effects of a signed document provides no defence of non-est factum.

10. The loan agreements in question might have been signed by the 2nd Defendant in order to obtain money from the Plaintiff for "the sole purpose of the 1st Defendant's smooth execution of the sub-contract between the 1st Defendant and the Plaintiff". But I am not persuaded on the facts before this court that it is opened to the 2nd Defendant to assert that the documents were signed because he did not realise their true nature.

11. I am not persuaded that the defence of non-est factum was available as a defence to the Plaintiff's claim. I am also not persuaded that there is any valid basis for suggesting that the 2nd Defendant was coerced into signing the loan agreement in question by economic duress. At the material time the 2nd Defendant was probably concerned that money should be obtained from the Plaintiff in order to carry on the sub-contract work in question. But the anxiety on his part to obtain payment is not the same as the Plaintiff exercising any duress on the 2nd Defendant as alleged.

12. There is no dispute that the 1st Defendant was indeed a sub-contractor of the Plaintiff and that the parties have substantial disputes arising out of the sub-contract in question. Those disputes are now the subject matter of certain arbitration proceedings.

13. In those arbitration proceedings, the 1st Defendant allege that the Plaintiff owed it about $6 million under the sub-contract in question. Hence, the Defendants claim to be entitled to a set off against the Plaintiff's claim.

14. As I have observed in the course of counsel's argument, the loan agreements in question clearly stipulate under Clause 6 that the 1st Defendant's liability to repay the loans or advance would only arise if payment due from the Plaintiff under the sub-contract in question cannot cover the arrears. Whether there is still any liability on the part of the 1st Defendant to pay or to repay the sums in question to the Plaintiff would depend, in my view, on the outcome of the arbitration proceedings.

15. Until and unless the Plaintiff can establish that there is no sum due to the 1st Defendant under the sub-contract in question, the Plaintiff cannot, in my view, on the proper contraction of the loan documents in question have a valid claim against the 1st Defendant in respect of the loans or advance in question.

16. In my view, the 2nd Defendant's liability to pay as a guarantor only arise if the liability on the part of the 1st Defendant as a debtor is established. At this stage, the Plaintiff has not established any liability on the part of the 1st Defendant. Indeed, this question cannot be resolved until the conclusion of the arbitration proceedings.

17. I am also of the view that the 2nd Defendant also has an arguable defence that subsequent to the execution of the loan agreements, there were in fact certified payments due to the 1st Defendant which payments under the loan agreements in question should be utilised for the repayment of the loans or advance in question.

18. I have considered carefully the background of this case and the submission by counsel.

19. I am firmly of the view that the arbitration proceedings must be resolved first before the matter in dispute between the parties can be probably resolved. And in all probability, once the arbitration proceedings are concluded there may not be the need to proceed with this case at all.

20. In my view, it is premature to grant the application for summary judgment which application is therefore dismissed.

21. Although there is no application before me pertaining to the further conduct of this case, I am of the view that the further conduct of the present proceeding must await the conclusion of the arbitration proceedings.

22. In the light of this background and despite the absence of any application from the parties, I think I have the power and I should order that the present proceedings should be stayed until the disposal of the arbitration proceedings and I make that order as well.